Coinbase vs SEC: Its significance on the DeFI Space
2021 was a special year for everyone within the DeFI Space as it turned out to be a year of many breakthroughs for the community. It was also a year of many firsts with Coinbase being the pioneering Crypto Exchange Platform to be listed on Nasdaq in April 2021 bridging the gap between DeFI space and TradFI. Despite the momentous achievement, Coinbase continues to be in a battle with the governing body SEC as of early 2024. So let’s take a closer look at Coinbase along with its case against the SEC and how it is significant for the DeFI Space?
Securities or Not……
Digitalisation is an inevitable trend that will soon encompass all parts of our daily lives with the growing importance of the internet. Digitalisation in its many ways obviously created a significant change in how people operate and this can often create a gap between the new & old. Bitcoin seems to fall in that category as an attempt to create a new Decentralized alternative for the finance space but has generated a mixed response from the community.
Bitcoin with its blockchain technology was a unique concept that not only has managed to create a world on its own but also build a gap with the traditional finance space. Fresh from the chaos that ensued in the Great Recession 2008, Bitcoin was meant to be the more efficient replacement to our fiat currency which fueled the growth of the DeFI space. Over the years the DeFI and Tradfi Space continued to operate in their own separate ways but both started to intertwine as Bitcoin grew in popularity.
The growth of the DeFI Space was extraordinary in less than a decade of its existence and along with it were the innovators who tried to bridge the gap between the traditional and decentralized. One such pioneer was Coinbase who currently are the second largest exchange platform in the world with more than 100 Million users as of 2024 and a growing market share within the U.S region thanks to its wide range of tokens listed.
Coinbase was amongst the pioneers in the crypto exchange platform sector founded in June 2012 by Brian Armstrong who previously worked as an Airbnb Engineer. Coinbase received cash infusion of $150,000 to kickstart its ventures later in 2012 and was joined by Fred Ehrsam, a former trader in Goldman Sachs as its Co — Founder. Coinbase then launched services to buy and sell bitcoin through bank transfers in October 2012 to establish itself as a leading exchange.
Coinbase grew quickly over the next couple of years through multiple series round investment from leading venture capital firms such as Draper Fisher Jurvetson, Union Square Ventures and Andreessen Horowitz to further expand its collaboration. The company also incorporated Coinbase Global Inc. in January 2014 as a holding company for its subsidiaries Coinbase Exchange which was launched as a U.S.-based bitcoin exchange for professional traders shortly after.
Coinbase continues to spread its wings around the DeFI Space through adding multiple payment features such as Ether and providing many new services such as the Coinbase Card and Coinbase Earn. Coinbase continues to battle market share with FTX during the early 2020s especially as the pandemic hits and adoption starts to grow but the company made history in 2021. On April 14 2021, Coinbase became a public company on the Nasdaq Stock Exchange via a direct stock listing with a reference price of $250 a share and an estimated value of $48 Billion.
The company didn’t only grow its earnings by nine fold that year but also became the first DeFI Company to be listed in the New York Stock exchange and bridged the gap between TradFi and DeFI. It quickly grew its market share in the year after as its Super Bowl ad gained major attention for the company while its competitor FTX fell out of the picture. This attention unfortunately not only came from users but also from regulators who start to oversee the company.
On 22nd March 2023, Coinbase received a Well’s Notice from the SEC which marked the beginning of a long drawn out battle regarding its Staking service the company offered. This would also raise a cloud of uncertainty within the DeFI Space to ponder whether digital assets should be considered as an investment contract and securities or otherwise? Simultaneously also set the precedent for the other DeFI Firms to be called into question after the collapse of FTX.
The SEC has spent a considerable amount of time addressing crypto matter in 2023 with the result being a mixed bag like the loss against Ripple and Grayscale that led to the approval of Spot Bitcoin ETF but it also managed a victory in the case against Coinbase. The SEC won its motion for default judgment against former Coinbase product managers who are acquitted for wire fraud and insider trading. This not only affected Coinbase brand in general but also may set a precedent for future hearing against other Crypto Exchange.
To be a (securities) or not? Obviously is a question remembered from all the cases against Crypto Firms including Coinbase as SEC attempts to regulate the DeFI Space. The general issue lies in the United States not having a fundamental regulatory framework that could oversee the DeFI Space while fitting current regulations to the space will not work. The hope is that the United States as a reserve country of the world could get its regulatory framework effectively so it could be an example for other nations to follow.
How Significant the Ruling Will Be?
Every ruling to a major DeFI firm will always be significant news for the DeFI Space and its shown in the performance of the stock price dropping to a low of $70 in November 2023. The saving grace for the DeFI Space was that the Digital Asset prices are soaring once again otherwise the situation for DeFI firms would be much dire. Coinbase will need to move forward and tread carefully as it regains confidence back in the DeFI Space.
This ruling will definitely be significant in establishing the compliance of DeFI Firms especially Crypto Exchange within the United States. We have seen that plenty of Crypto Exchange has undergone significant changes in order to comply and tap into a large market like the United States for adoption. This was obviously a necessary counter measure due to the backlash of FTX as more oversight is needed to prevent a collapse from happening again.
The after effect of compliance is the users can definitely trust the firms once again and assure that the exchanges are operated along with the right protocols. Along with that as mentioned previously this should be significant in learning the issues within the DeFI Space and provide the necessary regulatory framework to counteract those issues. The hope remains that the United States could roll out its regulatory framework within the year 2024. ‘
All in all, it’s a great euphoria for many enthusiasts within the DeFI Space as Bitcoin and other digital assets are finally back to where they belong but it’s also important that oversight is maintained to make sure that the growth is sustainable. Every DeFI Firms that follow this long term approach for regulatory compliance and transparency will obviously stand out and garner adoption as we head to an exciting year for space in 2024 and beyond!
We at Nagaya Technologies Pte Ltd. are excited about the development of the regulatory framework worldwide. These developments should be able to promote better clarity and regulatory compliance within the space. Legality and Transparency has been a part of our vision while also embedded within the development of the World’s First Hybrid Digital Asset — Nagaya. Intrigued to know more about the Nagaya journey, you can read our whitepaper through our official website at www.nagaya.co
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